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MUMBAI : A recent ruling by the Securities and Appellate Tribunal (SAT) against the markets regulator and its adjudicating officer has become a sore point between the two institutions.
The Securities and Exchange Board of India’s (Sebi’s) petition against the SAT ruling in the Supreme Court said unwarranted adverse remarks will impede the markets regulator’s ability to work fearlessly and independently.
The matter pertains to a SAT order passed on 16 December where it had questioned Sebi on a 12-year delay in starting the quasi-judicial process and sending a show-cause notice to Yatin Pandya, who is alleged to have manipulated the stock price for Sterling International Enterprises Ltd to evade long-term capital gains tax. Pandya and 29 other entities allegedly traded among themselves to create a false and misleading impression of genuine trading in scrips of Sterling, Sebi said in its order passed in September. The trading dates back to 2008-09.
The individual had filed an appeal in SAT against the Sebi order, citing the delay in starting the proceedings and passing the order.
SAT took cognisance of the petitioner’s arguments and said Sebi’s adjudicating officer dealt with the matter casually, which amounts to ‘judicial dishonesty’. It further directed the officer to file a reply and appear before the SAT.
Interestingly, it was just a two-page order that did not go into the merits of the case.
Adjudicating officers at Sebi are considered to be independent of the administration to ensure that they can pass unbiased and fair orders.
The matter did not end here. SAT, in another order, almost held Sebi in contempt as the adjudicating officer did not file a reply. SAT directed the officer to appear before it on 27 January. Mint has reviewed a copy of Sebi’s petition filed in the apex court. The court is expected to hear the plea when it reopens after the vacation.
Typically, in instances where adverse remarks are made against it or its whole-time members, the regulator files a review petition with SAT and requests it to remove the adverse comments. However, the regulator has taken the matter to the apex court this time.
“It is respectfully submitted that the making of adverse remarks/observation especially in the absence of any pleading and or finding of any mala fide or dishonesty would not only affect the independent and fearless dispensation of justice in order to protect the interest of investors but was also wholly unsustainable in law," said Sebi in its pleadings filed with the Supreme Court.
According to Sebi, the market regulator’s proceedings are not bound by any statute of limitation, which means that there is no time limit of when a matter can be picked up for passing orders.
Sebi further added that SAT has erred in passing such an order without considering the facts of the case.
This marks the second instance of a widening gap between these two bodies. Early last year, the regulator questioned the absence of a third member on the SAT bench. Ordinarily, the SAT needs to have three members on its bench. However, the third post, supposed to be occupied by a technical member, has been vacant for almost a year.
“Bench must have at least one technical member, and since the current bench is of judicial members, the constitution of the bench is defective, and orders passed by this bench would be coram non judice (not before a judge)," Sebi said.
Due to the lack of a third member, SAT ended up giving a split verdict in the PNB Housing Finance-Carlyle matter. In June, PNB Housing announced it would sell shares and warrants on a preferential basis to Carlyle Group for ₹4,000 crore. The transaction would have led to a transfer in control of PNB Housing to Carlyle Group.
On a complaint from a few investors, Sebi said the shares required an independent valuation as required by the mortgage lender’s articles of association. PNB Housing challenged Sebi’s decision in the appeals tribunal. However, the bench ended up giving a split verdict.
Sebi’s questions on the two-member bench prompted a SAT ruling last May. It said that proceedings before the tribunal cannot be questioned on the grounds of any defect in the constitution of SAT.
